maxing an ISA and interest?

[Efbe]

hi all

say I put the max of £5,760 into an ISA today.
when the interest comes in after a month, what will happen to it?

does the interest stay there and not get any interest?
should I put in a bit less and leave the interest to build to the maximum yearly amount?
do I need to transfer it out asap to somewhere else to get interest?

[davepoth]

Efbe said:

hi all

say I put the max of £5,760 into an ISA today.
when the interest comes in after a month, what will happen to it?

does the interest stay there and not get any interest?
should I put in a bit less and leave the interest to build to the maximum yearly amount?
do I need to transfer it out asap to somewhere else to get interest?

Interest goes into the account unless you asked the bank to do otherwise. Interest doesn't count towards the limit. Interest is compounded.

[Efbe]

davepoth said:

Interest goes into the account unless you asked the bank to do otherwise. Interest doesn't count towards the limit. Interest is compounded.

thanks.

umm, thicko here. by compounded, so you mean the interest gains interest?

[Ozzie Osmond]

Yes, that's right. Once money is in an ISA it's best to leave everything inside the ISA.

In other words, don't draw out the interest unless you really need to spend it. Over time the cumulative effect of money compounding tax free is very good. The only catch is that interest rates are so low these days.

[Efbe]

cheers for that.

hard to know what to do with such money at the moment. this and some work on the house seem the best investments

[DJRC]

Pay off any debt you owe is the most effective investment.

[Efbe]

DJRC said:

Pay off any debt you owe is the most effective investment.

what's left is a credit card at 0% for another 6 months, and a mortgage at 0.5%

[Deva Link]

Efbe said:

what's left is a credit card at 0% for another 6 months, and a mortgage at 0.5%

You're not as thick as you're making out then!

[anonymous-user]

Efbe said:

cheers for that.

hard to know what to do with such money at the moment. this and some work on the house seem the best investments

Well, I wouldn't plan to do too much with the ISA interest just now.

[davepoth]

Deva Link said:

Efbe said:

what's left is a credit card at 0% for another 6 months, and a mortgage at 0.5%

You're not as thick as you're making out then!

That's a lovely situation to be in. Any good ISA should be paying over 2% interest these days, so it makes sense to put the extra there at the moment.

[DJRC]

Efbe said:

DJRC said:

Pay off any debt you owe is the most effective investment.

what's left is a credit card at 0% for another 6 months, and a mortgage at 0.5%

Buy more property then.

Tuscany is dirt cheap compared to 5 yrs ago and will only start rising again soon.

[Ozzie Osmond]

This may or may not suit all savers/investors but I am a particular fan of stocks and shares investments in an ISA.

• Cash = fixed return. With low interest rates the tax relief on very little interest is very little tax relief.

• Shares = probable income return higher than cash at present although there is the inescapable risk that the actual value of the investment might fall, although hopefully it will rise.

BUT if you buy a £1 share you can never lose more than £1. On the other hand if you buy a £1 share its value should at least keep pace with inflation and with a bit of luck could rise to £2 or more. If you can get that value growth completely free from tax - in other words inside your ISA - it's a double win!

If you are unfamiliar with stocks and shares there is no need to feel embarrassed or overwhelmed. Businesses like Fidelity or Hargreaves Lansdown are very used to dealing with small investors and can set you up with a "UK equity income fund" inside an ISA very easily.

[Ozzie Osmond]

DJRC said:

Pay off any debt you owe is the most effective investment.

Yes, IMO that's a sound basic rule. Otherwise you are either,

• Borrowing money you've already got, which makes little sense

or

• Doing what the accountants call "gearing", which essentially means gambling on financial returns.

[NorthDave]

Ozzie Osmond said:

This may or may not suit all savers/investors but I am a particular fan of stocks and shares investments in an ISA.

• Cash = fixed return. With low interest rates the tax relief on very little interest is very little tax relief.

• Shares = probable income return higher than cash at present although there is the inescapable risk that the actual value of the investment might fall, although hopefully it will rise.

BUT if you buy a £1 share you can never lose more than £1. On the other hand if you buy a £1 share its value should at least keep pace with inflation and with a bit of luck could rise to £2 or more. If you can get that value growth completely free from tax - in other words inside your ISA - it's a double win!

If you are unfamiliar with stocks and shares there is no need to feel embarrassed or overwhelmed. Businesses like Fidelity or Hargreaves Lansdown are very used to dealing with small investors and can set you up with a "UK equity income fund" inside an ISA very easily.

You could also invest in a fund. Similar risks to the shares (i.e. it can go down) but less research involved. It took me until I was 30 before I twigged that ISA's were good things. Really wish I had been tucking the max away every year I'd been working now!